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Ruling

Subject: GST and reloadable Smartcards

Question 1

Does the Applicant make a taxable supply when it issues Smartcards to the public?

Answer

No.

Question 2

Is a taxable supply made when monetary equivalent value is uploaded onto a Smartcard by the cardholder?

Answer

No.

Question 3

Is a taxable supply made when the cardholder uses the Smartcard to purchase services from a specific Smartcard Operator?

Answer

Yes.

Question 4

Does the Applicant make a taxable supply when it refunds cardholders the unused monetary equivalent value remaining on their Smartcard?

Answer

No.

Question 5

Would the Applicant make a taxable supply if it were to charge cardholders an administration fee for refunding the unused value remaining on their Smartcard?

Answer

Yes.

Question 6

Can the Activity Statements be used by cardholders as written evidence to substantiate claims for Input Tax Credits?

Answer

Please see discussion below.

Relevant facts and circumstances

The Smartcard

· The Smartcard is a plastic secure contactless memory card that can be uploaded (reloaded) with monetary value, i.e. 'stored value', to enable cardholders to access services

· These services are provided by third party providers, the eligible Smartcard Operators.

· You understand that all eligible Smartcard Operators are registered for GST.

Features of the card

· Card Issue: The Applicant will issue the Smartcards to the public free of charge, with a nil balance. That is, cardholders will be required to upload value onto their Smartcard prior to using their card to purchase eligible services.

· No Deposit: Cardholders are not required to pay a deposit to acquire Smartcards.

· Uploading Value: Cardholders will be able to upload value onto their Smartcard in a variety of ways.

· No Interest: Cardholders will not receive interest on their Smartcard balances.

· Refunds: Cardholders will generally be able to request a balance refund for a faulty, damaged or unwanted Smartcard.

Activity Statements

· The Applicant will provide all registered cardholders with access to Activity Statements via a website and at certain outlets. Activity Statements contain a registered customer's details, opening and closing card balances as well as transaction history.

· The Activity Statement contains a line by line transaction and travel history.

· Cardholders will be able to save and/or print their Activity Statement at any time for their personal records.

· Unregistered cardholders will not have access to Activity Statements, however they will be able to obtain another form of documentation, with a line by line transaction and travel history for a limited number of services.

Transactions under the proposed arrangements

· All funds collected in respect of cardholders uploading onto the Smartcards will be held in bank accounts in the name of the Applicant.

· The Smartcard system will calculate the relevant price revenue generated by each eligible Smartcard Operator over the relevant period from Smartcards.

· The Applicant will release funds from this bank account to the benefit of the eligible Smartcard Operators for services provided to cardholders. These funds will be released by the Applicant for the gross value, inclusive of any GST payable by the respective eligible Smartcard Operators.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 9-10

A New Tax System (Goods and Services Tax) Act 1999 section 29-10

A New Tax System (Goods and Services Tax) Act 1999 section 29-80

Reasons for decision

Question 1

Summary

The Applicant does not make a taxable supply when it issues Smartcards to the public.

Detailed reasoning

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 states that:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply is *connected with Australia; and

(d) you are *registered, or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

As the Smartcard is issued to the public free of charge, the supply of the card will not be made for consideration as per (a) above. The absence of consideration means that the Applicant cannot make a taxable supply.

Question 2

Summary

No taxable supply is made when monetary equivalent value is uploaded onto a Smartcard by the cardholder.

Detailed reasoning

The Smartcard is considered to be a stored value card. Paragraph 51 of the Goods and Services Tax Ruling, GSTR 2003/12 'Goods and services tax: when consideration is provided and received for various payment instruments and other methods of payment' notes that:

51. For the purpose of this Ruling, the term 'stored value card' refers to a product taking the form of a card where value is stored on the card itself. Some stored value cards may be linked to accounts provided by an Australian authorised deposit-taking institution (ADI).

The Applicant is not an ADI. The ATO views the loading of value onto a non-ADI stored as not being consideration for any supply if the loaded card is used to purchase goods or services. Apart from the initial fee charged in Example 3 in GSTR 2003/12, the example is analogous with the Smartcard's use.

Example 3 - non-ADI stored value card

54. Haishin is a university student. She purchases a stored value card, with no credit on it, from her student union for $5.50 which she pays for in cash. She provides consideration for the supply of a card at the time she hands over the cash. If the requirements of Division 9 are met, this is a taxable supply by the student union for which the consideration is $5.50.

55. Later, Haishin loads $20 value onto the card using the machine provided by the union for that purpose. There is no supply when Haishin loads $20 value onto the card. Haishin uses the card to purchase photocopying, car parking, and confectionary from vending machines on the university campus. At the time she uses the card to pay for these goods and services, she provides, and the supplier receives, consideration for the supply. The consideration is the amount by which the value on the card is depleted.

Question 3

Summary

A taxable supply is made when the cardholder uses the Smartcard to purchase services from a specific Smartcard Operator.

Detailed reasoning

As outlined in Example 3 of GSTR 2003/12 above, the use of a non-ADI stored value card to purchase goods or services is akin to paying consideration for the goods or services.

The use of the Smartcard by the cardholder to acquire services from GST registered Smartcard Operators will give rise to the Smartcard Operators making a taxable supplies as per section 9-5 of the GST Act.

Question 4

Summary

The Applicant does not make a taxable supply when it refunds cardholders the unused monetary equivalent value remaining on their Smartcard.

Detailed reasoning

Subsection 9-10(4) of the GST Act provides that 'supply' for GST purposes does not include a supply of money unless the money is provided as consideration for a supply of money. There is no reciprocal supply of money contemplated in the refund transaction.

The mandatory surrender of the Smartcard by the cardholder in order to obtain the relevant refund is considered to be term or condition rather than the making of a supply or the tendering of consideration.

It follows that the refund of an unused balance does not meet the requirements of section 9-5 of the GST Act and the Applicant cannot make a taxable supply in these circumstances.

Question 5

Summary

The Applicant would make a taxable supply if it were to charge cardholders an administration fee for refunding the unused value remaining on their Smartcard.

Detailed reasoning

If the Applicant were to charge an administration fee, the supply it makes in return for the fee would satisfy section 9-5 of the GST Act:

(a) The Applicant makes a supply (the refund processing services) for consideration;

(b) The refund services are made in the course or furtherance of an enterprise that the Applicant carries on;

(c) The supply is connected with Australia, being services performed within Australia;

(d) The Applicant is registered for GST purposes.

Further, the refund services are not GST-free or input taxed

Therefore, a future move to charge refund administration fees would engender the Applicant to make taxable supplies when refunds are processed.

Question 6

Summary

Cardholders will not be required to hold a tax invoice to substantiate claims for Input Tax Credits for individual services with a GST exclusive value of $75-00 or less.

Detailed reasoning

Given the nature of supplies made in return for payment by way of deducting value from Smartcards, it is not considered necessary to either:

· establish the validity of Activity Statements as tax invoices; or

· consider whether a Determination under subsection 29-10(3) of the GST Act is required.

Pursuant to subsection 29-80(1) of the GST Act and regulation 29-80.1 of the A New Tax System (Goods and Services Tax) Regulations 1999, a tax invoice is not required to substantiate a claim for an input tax credit where the GST exclusive value of the creditable acquisition does not exceed $75-00.

With regard to the Smartcard, the $75-00 'low value threshold' is applied on an individual service rather than an aggregate of all supplies. We accept your synopsis that each individual service taken and paid for with a Smartcard meets the requirements of section 9-5 of the GST Act and is therefore a discrete supply. This is evidenced by the fact that an Activity Statement is, in part, designed to summarise acquisitions made from a variety of unrelated suppliers. Further, the predetermined price structure and 'logging on' and 'logging off' to calculate consideration differentiates one supply of services from the next.

You have stated that there are no individual services that can be accessed on the Smartcard with a value in excess of $82-50 (inclusive of GST). It follows that all creditable acquisitions will fall within the low value concession for holding tax invoices conferred by subsection 29-80(1) of the GST Act.

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